Spain bad loan ratio climbs to record 12.7% in September

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

MADRID — Defaults as a proportion of total lending at Spanish banks increased to a record in September as more borrowers missed loan payments in an economy with unemployment at 26 percent.

Non-performing loans accounted for 12.7 percent of lending in September compared with 12.1 percent in August and 10.7 percent in the same month a year earlier, the Bank of Spain said on its website Monday. The stock of bad loans rose to 187.8 billion euros ($253.8 billion) during the month as 6.9 billion euros in loans were classified as in default.

Rising bad debts show that Spain's banks, which have come under pressure from regulators this year to ensure that their bad loans are properly classified, still face challenges in controlling their asset quality even as the economy starts to crawl out of a five-year slump. The International Monetary Fund is predicting unemployment in Spain will not fall below 25 percent until 2018.

"There is no indication from this data on when non- performing loans might peak," said Daragh Quinn, a banks analyst at Nomura International in Madrid, in a phone interview today. "Spain has come out of recession, but you'd have to see stronger economic growth than what is forecast to become positive on the asset-quality trends."

Some Spanish bank shares dipped when the data was published shortly after 10 a.m. in Madrid. Bankia SA, which was nationalized last year, fell as much as 4 percent.

The Bank of Spain has been making banks review their assets to ensure that loans that have been refinanced and that have little chance of being repaid are properly classified.

The exercise resulted in a jump in third-quarter bad loans at lenders including Banco Santander SA, which said 7 percent of its Spanish mortgage loans were in default in September compared with 3.1 percent in June. Bad debts as a proportion of total loans in Spain at Banco Bilbao Vizcaya Argentaria SA rose to 6.2 percent in September from 4.7 percent in June.